THE CAMBRIDGE HISTORY OFCHINA
General editors
DENIS TWITCHETT and JOHNK. FAIRBANK
Volume 14
The People's Republic, Part 1:
The Emergence of Revolutionary China 1949-1965
8 The Chinese economy under stress, 1958-1965
by NICHOLAS R. LARDY
THE PARTY’S RESPONSE TO THE FAMINE CRISIS
The crisis created by the Great Leap Forward posed the most severe challenge the Party had faced since coming to power in 1949. Yet the course of political events not only made it difficult for the Party to anticipate the magnitude of the crisis but led to policy decisions that exacerbated the famine. Even more startling is the fact that once incontrovertible evidence of widespread famine was in hand, the Party remained paralyzed, unable or unwilling to formulate a timely and cohesive response to the most massive famine of the twentieth century.
Evidence of the failure of the agricultural mobilization strategy was available as early as the winter of 1958-59. It was clear to members of the Central Committee at the time of the Wu-ch'ang Plenum in November and December 1958 that there was precious little basis for the announcement that 1958 grain output was 375 million metric tons and cotton output was 3.5 million metric tons. The account by P'eng Te-huai, then a member of the Politburo and minister of national defense, of the discussions at that meeting shows that the statistical system had deteriorated to the point where it was impossible to know the actual harvest level with any degree of confidence. According to P'eng, some comrades at the meeting thought that the harvest was in excess of 500 million tons and that regardless of the precise amount, "industry is now vastly behind agriculture." P'eng challenged the accuracy of the reported levels of output. According to P'eng, Mao personally made the decision to announce a figure of 375 million metric tons.48 The published output figures thus reflected a political rather than a statistical judgment.
Although those figures became the basis for agricultural planning for 1959, at least two members of the Politburo challenged the veracity of substantial increases in reported cereal production. P'eng Te-huai, sometime after the conclusion of the Wu-ch'ang Conference, traveled to Hunan province for a firsthand examination of rural conditions. He found that conditions in the countryside where he visited were grave and concluded that the output figures previously submitted to the center were inflated. Not waiting until he could return to Peking and report his findings directly, and fearing that "the masses are in danger of starving," he sent an urgent cable to the Central Committee requesting that the province's tax and compulsory delivery quota be reduced by one-fourth.49
Ch'en Yun, the fifth ranking member of the Party and by far the most senior on economic affairs, also distrusted the reports being submitted to Peking and in the spring of 1959 pointedly chose to visit Honan, the province that had played such a path-breaking role in the water conservancy campaign in the winter of 1957-58 and subsequently in the formation of communes. He too found that local political cadres were out of touch with conditions in the rural areas of the province, lacked adequate data on the true grain situation, and were deluded by the inflated reports submitted from the grassroots level.50 It is not clear how Ch'en brought his findings to the attention of other members of the Politburo, but it is implausible to argue that he kept the information to himself.
The reports of P'eng Te-huai and Ch'en Yun in the winter and spring of 1959 signaled that the fundamental strategy of the GLF was flawed. Organization of large-scale communes and massive political mobilization had not raised agricultural output in 1958 even with weather conditions that, on balance, were more favorable than in either 1956 or 1957.51
P'eng personally posed a dramatic challenge to the strategy of the Great Leap Forward and, more important, to Mao's leadership at the crucial party meeting convened at Lushan in July 1959. But P'eng's broadside was decisively rebuffed by Mao, and the GLF entered a new upsurge in which criticism of policy became impossible. Far more significant, the intensive mobilization of resources for industrialization accelerated. During 1959 the rate of investment rose to an all-time peak of 43.4 percent of national income. The state supported this drive in large measure by increasing its extractions of cereals, vegetables, and fiber crops from the peasantry. The effect of rising cereal procurement on the rural population is shown in Table 7. In 1959 retained grains, which included amounts that had to be utilized for livestock feed and seed for the following year's crop, fell dramatically to 223 kilograms per capita, only three-quarters of the level of 1957. Similarly, even though production was down, the state's procurement of oil-bearing seeds rose by one-quarter in 1959 compared to 1957. A growing quantity of agricultural goods was exported to the Soviet Union in payment for the stepped-up imports of machinery and equipment that were a key component of the higher rate of investment.
Most astounding, even as the mortality rate was rising in 1959, Chinese exports of cereals, shown in Table 8, were reaching peak historical levels. Exports (primarily rice and soybeans) in 1959 reached a level twice the average of the 1st FYP, while imports (mostly wheat) fell to the lowest level in six years. Thus net exports in 1959 were more than double the average annual level of the 1st FYP. Similarly, in 1959 cotton yarn and cotton cloth exports were double and almost double, respectively, the levels of 1957. In value terms, Chinese exports to the Soviet Union rose 50 percent between 1957 and 1959 and in 1959 made up 60 percent of China's exports.52
Moreover, at the height of the GLF crisis in 1958-62, government expenditures for rural relief averaged less than 450 million yuan per year, or about eight-tenths of a yuan annually for each individual in collective agriculture,53 while the market price of grain in shortage areas had reached 2 to 4 yuan per kilogram. The internal welfare funds of collective units did not provide an effective alternative source of support for starving rural people. In i960, the peak of the mortality crisis, internal welfare funds totaled only 370 million yuan.54
The only policy responses to the famine visible in i960 were meager, given the magnitude of the crisis. Cereal procurements were scaled back by more than 16 million tons (Table 7). But since resales to peasants did not increase over the previous year and total production fell by more than 25 million tons, the grain retained in the countryside fell even farther from the already low levels of 1959, and rural mortality rates skyrocketed. Second, exports were scaled back and the Chinese opened discussions for large-scale wheat imports. But exports in 1960 remained well above the average level of the 1st FYP (Table 8), and the decision to import appears to have been more related to an emerging crisis of urban consumption standards than a response to the rural crisis that by the time contract negotiations opened, had been going on for a year and a half. Urban consumption standards had been maintained in 1958 and 1959 not only through record levels of procurement but in part by drawing down state-controlled grain inventories. In an effort to conserve the small remaining stocks, in September i960 the amount of grain supplied to urban residents through the rationing system was reduced by one kilogram per capita per month.55 In October, contracts for wheat imports were negotiated and signed.
Finally, changes in rural policy were contained in a document drafted by Chou En-lai entitled "Urgent directive on rural work." That directive, approved by the Central Committee in November 1960 despite the opposition of some Party members, sought to alleviate the rural crisis by changing the internal organization of agriculture. It formally endorsed a shift of the locus of decision making from the commune, an organization that was too large to provide adequate incentives and effective management of labor intensive agricultural processes, downward to the brigade, the smaller intermediate-size unit in the three-level rural organizational structure. In some ways the directive also sought to enhance the power of the lowest-level units, the production teams.
While the decision to import cereals and to shift the locus of decision making and income distribution to lower levels of the commune may have partially alleviated the disincentives associated with the commune system, it was not until late 1960 that a comprehensive reevaluation of the GLF strategy was initiated and a more cohesive response to the crisis began to emerge. The initiative was led by Chou En-lai, who revived the Finance and Economics Small Group, a crucial policy-making organization, to take the lead in the formation of a recovery strategy. A key element of Chou's reconstitution of this group was his personal invitation to Ch'en Yun to return to play an active role in economic policy formulation. Ch'en had fallen from sight after the first half of 1959 prior to the convening of the Lushan Conference, perhaps for reasons of health but more likely because of his opposition to policies of the GLF. In the early 1960s, he reemerged as the central figure in designing the recovery strategy.
The core of Ch'en's view was that sustained recovery was possible only with a more balanced growth strategy. While he naturally supported a reduction in the degree of socialism in the countryside, Ch'en argued that internal changes in agricultural organization could not provide an adequate basis for either recovery or sustained growth in the future. Ch'en's strategy embodied more far-reaching changes: more active use of price policy; increased specialization in agricultural production based on comparative advantage in cropping patterns and interregional trade; the development of a modern chemical industry to supply fertilizers to agriculture; a restoration of normal marketing channels; a substantial reduction in the rate of investment and a shift in its composition away from metallurgy and machinery toward consumer goods and selected industrial goods that could be used to support agricultural production; and the resettlement in rural areas of almost 30 million persons who had migrated to cities after 1957, initially because of the increased numbers of urban jobs available and subsequently to seek food.56
Among the highest levels of Chinese leadership, Ch'en Yun had the deepest understanding of the problems of China's agriculture. His views seem clearly to have been shaped by the experience of collectivization in 1955-56, which showed that whatever economies of scale existed in production were far from sufficient to offset the disincentive effects of large units where the high costs of monitoring individual work under conditions of dispersed production make it difficult to reward individual productivity. Ch'en thus differed profoundly from Mao Tse-tung, who had continued to seek agricultural growth primarily through increased mobilization of labor and other inputs within agriculture. Moreover, Ch'en in 1955-56 had opposed the closure of rural markets, which reduced opportunities for peasants to earn extra income. Finally, Ch'en advocated a lower rate of investment - in sharp distinction to Mao, who seemingly oblivious of the problems created by the excessive rate of investment of the
GLF, as late as 1960 continued to believe that an investment rate of about 30 percent could be sustained.57
But because of continued opposition it would take more than two years for Chou, Ch'en, and others to secure the approval and implementation of these policies. Initially, the debate focused on agricultural policy. Rural investigations during 1961 by Ch'en Yun and others strengthened the hands of those seeking reforms more fundamental than were entailed in the i960 "Urgent directive on rural work." Ch'en, in his investigation of his native Ch'ing-p'u county, near Shanghai, found even in this relatively prosperous Yangtze Valley area, where there had been no reported natural calamities, that "there is not enough grain to eat," that mismanagement by Party cadres undermined incentives, and that exaggerated production claims were still being reported to higher authorities. Ch'en recommended further strengthening of household production, expansion of private plots, and less interference in the determination of cropping patterns by rural political cadres.58
Chen's concerns about agriculture were not based only on investigation of individual local areas. He was also alarmed by the continued drawdown of state grain reserves and the difficulty of reviving interregional grain transfers. By the middle of 1961 state grain reserves, which had stood at 21.35 million and 18.20 million metric tons in mid-1956 and mid-1957, respectively, were depleted to little more than working stocks.59 In December 1960, as Peking, Tientsin, Shanghai, and other major cities, as well as areas incurring major natural disasters, were hard-pressed to maintain food supplies, the central government issued an urgent directive requiring those provinces with surplus to mobilize all available manpower to ensure the fulfillment of provincial responsibilities to transfer grain.60 Yet the amounts to be transferred were negligible compared to the 1st FYP or even to the latter half of 1959 and the first half of i960, when the self-sufficiency policy of 1958 was abandoned and interregional grain transfers revived.61
Even maintaining modest levels of procurement was difficult, since peasants were increasingly less willing to sell to the government. In part, that reflected low levels of per capita production and rural starvation. But in many regions with surplus grain peasants were unwilling to sell grain, even at the higher prices instituted in 1960, because of the acute shortage of consumer goods in the countryside. With the decline in the output of manufactured consumer goods and the collapse of the distribution system, peasants fortunate enough to have surplus grain above their own consumption needs were interested in acquiring real goods, not increased quantities of money whose purchasing power was rapidly eroding. To get peasants to part with their grain, beginning in the winter of 1961 the state not only had to pay higher prices but also had to guarantee rights to purchase goods no longer available in sufficient quantities in the countryside. In exchange for selling 750 kilograms of cereals at the new higher fixed procurement price, peasant producers were given the right to purchase, at prevailing retail prices, 15 feet of cotton cloth, 1 pair of rubber shoes, 20 feet of knit goods, 1.5 kilograms of sugar, 2 cases of cigarettes, and 400 grams of cotton for padding in quilts and jackets.62
The positive incentive provided by improved access to scarce consumer goods was reinforced with sanctions. In March 1962, in an effort to force more grain into government hands, a new directive was issued strictly forbidding the sale and purchase of grain on rural markets.63 However, as shown in Table 7, procurement recovered only slowly.
These continued problems in the agricultural sector led Ch'en Yun and others to seek further reforms. That effort was reflected in Liu Shao-ch'i's report at the Seven Thousand Cadres Conference in January 1962, which portrayed a continuing grim rural situation. Debate, however, continued. The proponents of the GLF, which included a large number of cadres beyond Mao and his closest supporters, argued in 1962 that the policies of adjustment had set the stage for a new leap forward, which they sought to embody in the 3rd FYP, scheduled to begin in 1963. Chou En-lai, Liu Shao-ch'i, Ch'en Yun and other moderates favored an extension of the period of readjustment through 1965 that would entail continued priority for agricultural development and a deferral of the ambitious industrialization program being pushed by Wang Ho-shou of the Ministry of Metallurgy and other continued strong supporters of an industrialization strategy based on heavy industry.64 This ongoing debate is fascinating, since it suggests that the rectification campaign of
1960-61, which removed a number of leftist provincial and lowerlevel political leaders who lacked "sufficient understanding of the distinction between socialism and communism," was not sufficiently far-reaching to reestablish a consensus on economic policy.65
48 Nicholas R. Lardy and Kenneth Lieberthal, Chen Yun's strategy for China's development, xxv.
49 Ibid., xli. Li Jui, "Tu 'Peng Te-huai tzu-shu'" (Reading P'eng Te-huai's own account), JMJP, 30 March 1982, 5.
50 Teng Li-ch'iin, Hsiang Ch'en Yun t'ung-chih hsueh-hsi tso ching-chi kung-tso (Study how to do economic work from comrade Ch'en Yun), 54-55.
51 The sown area suffering losses of 30 percent or more due to calamities and natural disasters in 1958 was 13.73 million hectares. In 1956 and 1957 the area suffering similarly was 15.23 and 14.98 million hectares, respectively. TCNC 198J, 212. 52 State Statistical Bureau, "Chung-kuo ching-chi t'ung-chi tzu-liao hsuan-pien" (A compilation of Chinese economic statistics), in Hsueh Mu-ch'iao, ed., Chung-kuo ching-chi nien-chien 1982 (Chinese economic yearbook 1982), viii— 38, viii-47, viii-59.
53 Lardy, Agriculture in China's modern economic development, 131.
54 TCNC 1981, 195.
55 Liu Sui-nien, Liu-shih nien-tai, 180.
57 Kjeld Erik Brodsgaard, "Paradigmatic change: Readjustment and reform in the Chinese economy, 1953-1982," Modern China, 1983. 2, 255-56.
58 Ch'en Yun, "Ch'ing-p'u nung-ts'un tiao-ch'a, i-chiu-Iiu-i nien pa yueh" (An investigation of rural Ch'ing-p'u (August 1961)) in Ch'en Yun t'ung-chih wen-kao hsuan-pien, i-chiu wu-liu-i-chiu liu-erh (Selected manuscripts of comrade Ch'en Yun, 1956-1962), 130-46.
59 Lardy and Lieberthal, Chen Yun's strategy for China's development, xxix-xxx.
60 Liu Sui-nien, Liu-shih nien-tai, 181-82.
61 Kenneth R. Walker, Food grain procurement and consumption in China, 155, 158.
62 Chao Hsing-han and Ts'ao Chen-liang, "Ch'ien t'an nung-ch'an p'in shou-kou-chung ti i-wu to chia," Chia-ko li-lunyii shih-chien, 1982. 4, 28. Wang P'ing, "Ts'ai-mao fang-mien t'iao-cheng ti ch'ing-k'uang ho ching-yen" (Our experience and the situation in the financial aspects of readjustment), in Liu Sui-nien, Liu-shih nien-tai, 148.
